IBM Unlikely to Break Multiyear ResistanceThe old school tech behemoth is scheduled to segregate slow-growing operations into an entity called Kyndryl by year’s end.
International Business Machines Corp. (IBM) is trading higher by 3% in Tuesday’s pre-market after posting the strongest quarterly growth in three years. The old school tech behemoth reported a Q2 2021 profit of $2.33 per-share, $0.04 higher than estimates, while revenue rose a modest 3.4% year-over-year to $18.75 billion, $400 million higher than consensus. The company issued inline fiscal year guidance, expecting adjusted free cash flow of $11 – $12 billion based in July exchange rates.
Trading Derivatives carries a high level of risk to your capital and you should only trade with money you can afford to lose. Trading Derivatives may not be suitable for all investors, so please ensure that you fully understand the risks involved, and seek independent advice if necessary. A Product Disclosure Statement (PDS) can be obtained either from this website or on request from our offices and should be considered before entering into a transaction with us. Raw Spread accounts offer spreads from 0.0 pips with a commission charge of USD $3.50 per 100k traded. Standard account offer spreads from 1 pips with no additional commission charges. Spreads on CFD indices start at 0.4 points. The information on this site is not directed at residents in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.
What’s Happening with Spin-Off?
Cloud and Cognitive Software division income rose 6% year-over-year while Global Business services added 12%. IBM reported $27 billion in total cloud revenue in the last 12 months, marking a 15% year-to-year improvement. It posted less spectacular results in the most recent quarter, with $7 billion yielding a 13% gain. Red Hat revenue grew a respectable 20% in the sixth full quarter since the company was acquired in a $34 billion transaction.
Curiously, the release provided no update on the spin-off announced in October 2020. IBM is scheduled to segregate the slow-growing Managed Infrastructure Services division into an entity called ‘Kyndryl’ by year’s end, in order to focus on faster-growing cloud and software operations. While the new slimmed-down business should command a higher multiple, the lack of updates may indicate internal issues that could impact the rollout.
Wall Street and Technical Outlook
Wall Street consensus is mixed despite a morning upgrade from Societe Generale, with a ‘Hold’ rating based upon 5 ‘Buy’, 11 ‘Hold’, 1 ‘Underweight’, and 1 ‘Sell’ recommendation. Price targets currently range from a low of $115 to a Street-high $185 while the stock is set to open Tuesday’s session about $7 below the median $150 target. This humble placement suggests high levels of Main Street skepticism after years of sub-par performance
IBM topped out at 215.80 in 2013 and entered a brutal decline that posted an 11-year low in March 2020. The subsequent uptick reached an 8-year trendline of declining highs in June 2021, yielding a quick rally, followed by a failed breakout that reinforces the secular downtrend. A buying spike above 153 is now needed to mount this substantial barrier but that seems unlikely because the stock has been under active distribution for the last 18 months.
For a look at all of today’s economic events, check out our economic calendar.
Disclosure: the author held no positions in aforementioned securities at the time of publication.